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We
are pleased to present the following exclusive interview with legendary international
investor, best selling author, adventurer and family man Jim Rogers, Chairman
of Rogers Holdings and founder of the Rogers
International Commodity Index (RICI).
Hera Research Newsletter (HRN): Thank
you for speaking with us today. Let’s start with the world reserve
currency. What do you think about the International Monetary Fund (IMF)
replacing the US dollar as the world reserve currency with Special Drawing
Rights (SDRs)?
Jim Rogers: The world didn’t have an IMF for a few thousand
years. The IMF was founded after the Second World War to take care of any
short-term currency needs that countries might have. It turned out pretty
quickly that they didn’t have very many as the world recovered from the
war, so the IMF found other things to do. They now have thousands of
employees and have manufactured jobs for themselves. They’ve not had
much success, if you look back over the past 60 years. Nearly everything
they’ve done was wrong. Why do we need the IMF? It’s not 1945
anymore.
HRN: Rather than using a national currency as the world reserve currency, what
about a global central bank?
Rogers: That’s not what the IMF is, first of all, but even if
they were, we certainly don’t need a central bank for the whole world.
We never had one and the world got along pretty well for thousands of years
without bureaucrats taking the world’s money. I’ve never added up
how much the IMF has spent during the last 60 years but it must be a
staggering amount, and for what good? I mean, we certainly haven’t
gotten anything out of it. We haven’t gotten nearly as much for our
money as they have spent.
HRN: So, you wouldn’t agree with using IMF SDRs as the world
reserve currency?
Rogers: I’m sure the world does need to replace the US dollar.
I’m not the only one who knows that. The US dollar is a terribly,
terribly flawed currency. The US is the largest debtor nation in the history
of the world. Something has got to be done. We cannot continue with a
currency which is so deeply flawed and something is going to have to be
changed. Special Drawing Rights, I don’t know. It could work. I
don’t know what’s going to work. Most people, however, want to
have something in their hands that they think they can spend. A Special
Drawing Right is pretty amorphous and, while some professors and some bankers
may understand them, I suspect that most people in the world will not
understand Special Drawing Rights and will not be terribly enthusiastic, if
that’s what happens. So, I would suspect it wouldn’t last. You
know, I cannot imagine that a Special Drawing Right, which has no real
existence, could survive a crisis or two. Human beings just don’t think
that way, I’m afraid.
HRN: Would you advocate a commodity-backed reserve currency instead?
Rogers: Reserve currencies can be anything that you want. The problem
with paper money is that it’s easy to debase and abuse. As I said, the
US is the largest debtor nation in the history of the world. They keep
printing the stuff. The UK, once upon a time, had the world reserve currency.
They abused it mightily. Eventually the world just said “no,
we’re not going to take sterling anymore” and rightly so. So, in
my view, that’s the problem with paper money. Now, gold has its own
problems too. Gold
didn’t survive very long either as the world reserve currency since
politicians kept changing the rules. Unfortunately, politicians know how to
abuse and destroy. One can think of various and sundry solutions. My only
worry is that, no matter what mankind has come up with in the past,
politicians have always found a way to abuse it and debase it.
HRN: Do you think a return to the gold standard would constrain
government abuse?
Rogers: Well, it never has. The Romans had precious metals as their
currency and do you know the term “debase”? The Roman politicians
had the brilliant idea that if a coin was 100% pure precious metal, they
could slip a little base metal in and, over a couple of hundred years, they
went from 100% pure precious metal to almost 0%. That’s where the term
“debase” comes from. So, we’ve tried it.
HRN: You mentioned that the US is the largest debtor nation in the
history of the world. Do you think that will lead to high inflation or
hyperinflation in the US?
Rogers: Well, there will be inflation. First, you have to have
inflation before you can have hyperinflation. I mean, we have inflation now.
If you go to the shop, whether it’s groceries, or education or
insurance or health care, prices are going up for everything. The government
lies about it in the US. Some countries lie, many countries don’t: Australia,
China, India and Norway. Many countries don’t lie about it and
acknowledge that we have inflation. Others lie about it, the UK and the US,
but if you go shopping you know prices are up.
HRN: Are you saying that the American Consumer Price Index (CPI)
published by the US Bureau of Labor Statistics is a lie?
Rogers: In my opinion, yes, of course it is. Have you looked at it?
They’ve changed their accounting several times in the past few decades.
When housing was 20% to 25% of the CPI and housing was going up, they
didn’t count it, saying rents weren’t going up, and then when
home prices started going down, they counted it. It’s the same with
many things. It’s staggering some of the tortuous reasoning that the
BLS has used over the past 25 or 30 years. When the price of gasoline goes
up, they say
it’s not really going up because it’s better
gasoline, better quality, therefore you’re getting more for your money.
I mean, it’s endless, the stuff that they say and for some reason
people sit there, although more and more people are catching on, and accept
what the government says. As I said, in other countries, they acknowledge that
there’s inflation. I don’t know how there could be inflation in Australia and not in the
US; how you can have inflation in Norway or India and not in the US, but the US says
there’s no inflation.
HRN: An article in the Telegraph by Ambrose Evans-Pritchard
reported this week that the US Federal Reserve’s M3 monetary aggregate
is estimated to be contracting at an accelerating rate, in other words,
deflation.
Rogers:
What’s going down in price in the US economy? I’d like to know
where you shop. We know home prices are down. Oil prices are down to $73 per
barrel, if you’re talking about a monthly or quarterly basis, or even
an annual basis. I’m talking about what’s going on in the big
picture. Where is the deflation in the US?
HRN: Some people believe a contraction of M3 indicates deflation.
Rogers: Is M3 something you buy in a shop? M3 can lead to changes in
the price structure, but M3 is not price inflation or deflation.
HRN: That’s a good point. Inflation is a concern in Europe and
the Euro seems to be in trouble. Can the Euro survive?
Rogers: I certainly expect the Euro to be around in 2012 or 2013, but
whether it’ll be around in 2023, I don’t know. It’s
becoming more and more a political currency. It wasn’t always. In the
beginning, it wasn’t a political currency. It was designed to be a rock
solid currency, but, since then, it’s become a political currency and
most political agreements or political institutions don’t last. No
currency union has ever lasted. It’s been tried before. I wish the Euro
would survive. The world needs something to compete with the dollar. The
Euro, on paper, makes enormous sense, but, unfortunately, the people who
wrote that contract back in 1992 are all gone now and the new guys all want
to buy votes. So, I would like to see the Euro survive, but, in reality, I
don’t see how it can.
HRN: So, you expect more inflation in Europe?
Rogers: Yes. Printing money has always led to inflation, eventually.
When things go wrong, governments have always printed money, at least in the
last few decades. That’s all they know and they will do it again. There
will be times, obviously, when the printing presses slow down or even stop
but when things get bad again they start over, and that’s all they
know.
HRN: I’ve read that China is experiencing high inflation.
Rogers: There is inflation in China. There are many places that are
reporting inflation. It’s dumbfounding to me that many countries have
inflation and the US doesn’t. That’s because some governments lie
and some governments don’t.
HRN: It’s been widely reported that Chinese real estate is in a bubble. Do
you think that’s true?
Rogers: In urban, coastal real estate there certainly was a bubble.
That’s not the whole of China. Have you ever looked at a map of China?
Do you consider urban, coastal real estate the Chinese economy? Where’s
the bubble? Other real estate in China has, for the most part, had very
little movement.
HRN: Do you think China’s economic growth is sustainable?
Rogers: Is it sustainable, yes; every quarter, every year, of course
not. You know, in the United States in the 19th century, we had 15
depressions, a horrible civil war, no human rights, massacres in the streets
and very little rule of law, and yet, out of that, we had a pretty successful
20th century. China is going to have many, many problems as they rise. I
don’t know what and I don’t know when, but I know it’s
going to happen. I don’t see any other country on the horizon that is
going to have, long term, a sustainable, good future in the 21st century.
HRN: You’ve talked about inflation, pointed out problems with
the US dollar and the Euro, and described the rise of China. How can citizens
of Western countries protect their wealth?
Rogers: Historically, the best way is to own commodities. Throughout
history, the way you protect yourself when currencies are being debased is
that you own real goods. Whether that’s silver or cotton or natural gas
or whatever it happens to be, you own something that’s a real good. As
the value of money is debased, some things will maintain their value and some
will even increase.
HRN: Investors seem to be turning to gold as a way to preserve their
wealth.
Rogers: Gold has been, historically, a good way to preserve wealth,
but so have other things as well. I own gold. Gold is making all-time highs.
It certainly has been a way to preserve wealth in the last decade. Whether
there are better things in the next decade or not, and I suspect that there
will be better things, I do own gold.
HRN: You mentioned silver as a way to preserve wealth, but gold seems
to be in the spotlight.
Rogers: Let’s put it this way, silver is about 70% below its
all-time high. Gold is making all-time highs. Often, one is better off
investing in things that are down 70%, rather than things that are making
all-time highs.
HRN: Thank you for being so generous with your valuable time.
After
Words
Jim
Rogers doesn’t mince words. When a person as remarkably successful and
accomplished as Jim Rogers, and having long experience, states that the
official statistics produced by government economists and views expressed in
mainstream financial news outlets are incorrect, or disingenuous, one must
take pause. Objectively speaking, for a majority of investors, views that are
at odds with those of Jim Rogers are probably wrong.
According to Rogers, the US dollar is deeply flawed because the US is the
biggest debtor nation in the history of the world and, although an
alternative currency is needed, the Euro will not survive in the long run
because it has become political, and IMF SDRs will probably not last as a
reserve currency in the face of significant global economic crises. Long-term
trends point to inflation and to the sustainability of China’s economic
growth, as well as to China’s ascent as a world power. As prices
inevitably, eventually rise due to inflation, real goods stand out as a time
tested way to preserve wealth and to profit from changing economic
conditions. In simple terms, currencies can be printed but real things
cannot.
Disclosure:
No
positions
Ron Hera
Hera Research
Visit his website
Send him mail
Ron Hera is the
founder of Hera Research, LLC, and the principal
author of the Hera Research Monthly newsletter. Hera Research provides deeply
researched analysis to help investors profit from changing economic and
market conditions
About
Hera Research
Hera Research,
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Research Monthly newsletter covers
key economic data, trends and analysis including reviews of companies with
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